Coal India E-auction premiums decline but could be offset by increase in volumes; stocks down 2%

For FY2024, Coal India has slightly lowered its FY24E volume guidance to 770mt and FY2025 and is expected to dispatch over 610mt to the power sector in
FY24E.

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Shares of Coal India fell 2 percent at open on the NSE on February 20, a day after the management told analysts that its E-auction premiums had dropped to around 48-50 percent in January 2024, and to around 38 percent in February 2024. On the other hand, volumes had increased 17 percent and stood at 13 percent of sales. At 9:20 am, the stock was trading at Rs 420.50.

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In an earnings call, Coal India management said that E-auction premiums for FY2024 are expected to be around 80 percent. Additionally, for FY2024, Coal India has slightly lowered its FY24E volume guidance to 770mt and FY2025 and is expected to dispatch over 610mt to the power sector in
FY24E. The management added that Coal India will bid for three blocks in critical minerals auctions conducted by the country’s mines ministry in February.

In a conversation with Moneycontrol, Mayuresh Joshi, Head – Equity Research at William O’Neil said that scaling down production volume was not significant due to wide variation in previous production levels -750 to 780 million tonnes. While the decrease in e-auction premiums spooked the stock, the situation is not believed to be structural in nature and is expected to normalize over time, unless it persists for a long period of time.  Going forward Joshi said, that there is an expectation of marginal earnings cut in the next couple of quarters if e-auction premiums remain low. Additionally, infrastructure developments such as evacuation lines and railway lines are expected to contribute to stable output

What brokerages say

Brokerage firm CITI has a neutral call on the stock with a target price of Rs 430 per share. The E-auction volume, according to the brokerage should largely offset the premium decline. The stock has more than doubled in the last year on strong volumes and power demand. CITI values the company at 8x Sep’25 FY25 P/E.

CLSA has an outperform call on the stock and has raised the target price to Rs 480. According to the report, import substitution could keep the Domestic Coal Balance intact, even if output outstrips supply. At a 5x CY26 EV/EBITDA, CLSA sees the valuations as fair.

Motilal Oswal has a buy call on the stock with a target price of Rs 461. According to the brokerage, “the  Ministry of Power has set the FY2024 electricity generation target at 1,750 bu. Of this, the share of thermal power is expected to be over 75 percent. This augurs well for COAL to achieve strong coal production in the next few years.”

Also read: Coal India to bid for 3 mines in critical minerals auctions in February

In Q3FY24, Coal India reported a 17.8 percent YoY rise in net profit to Rs 9,093.69 crore for Q3FY24. Revenue increased 2.8 percent YoY to Rs 36,153.97 crore while earnings before interest, tax, depreciation, and amortisation (EBITDA) grew 13 percent YoY to Rs 13,576.35 crore.

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